USD/JPY consolidates near YTD top, just below 135.00 mark as FOMC minutes looms large

• USD/JPY struggles to gain any meaningful traction and remains confined in a narrow range.
• Hawkish Fed expectations continue to underpin the USD and act as a tailwind for the major.
• Recession fears, geopolitical tensions benefit the safe-haven PY and seem to cap the upside.
• Traders also seem reluctant to place aggressive bets ahead of the FOMC meeting minutes.

The USD/JPY pair oscillates in a narrow trading band through the first half of the European session on Wednesday and consolidates its recent gains to a two-month high touched the previous day. The pair is currently placed just below the 135.00 psychological mark as traders keenly await the release of the FOMC minutes for a fresh impetus.

The markets have been pricing in at least a 25 bps lift-off at the next two FOMC meetings in March and May. Hence, investors will look for fresh clues about the Fed's future rate-hike path. This, in turn, will play a key role in influencing the US Dollar price dynamics and help determine the next leg of a directional move for the USD/JPY pair. In the meantime, growing acceptance that the US central bank will stick to its hawkish stance acts as a tailwind for the Greenback and lend some support to the major.

The expectations were reaffirmed by strong US PMI prints on Tuesday, showing that business activity unexpectedly rebounded to an eight-month high in February. Moreover, the incoming positive US macro data pointed to an economy that remains resilient despite rising borrowing costs and should allow the Fed to keep raising rates to control inflation. This remains supportive of elevated US Treasury bond yields and assists the USD to stand tall well within the striking distance of a six-week high.

Market participants this week will further take cues from the newly nominated head of the Bank of Japan (BoJ) Governor Kazuo Ueda's testimony on Friday. Investors will scrutinize Ueda's view on the future of yield curve control (YCC) and super-easy monetary policy, which should drive the Japanese Yen (JPY). Heading into the key event risks, looming recession risks, along with geopolitical tensions, seem to benefit the JPY's safe-haven status and keep a lid on any meaningful upside for the USD/JPY pair.

Technical levels to watch